The Road Ahead: A Call for Tax Reform

As the long, hot summer marches on, the Texas Legislature has struck a deal and passed a substantive tax relief package. The plan provides $18 Billion dollars in tax relief in the form of tax compression and a homestead exemption increase, both of which provide much needed financial relief to struggling Texans.

With this new deal, policymakers have delivered on tax relief, but many are still concerned about the need for tax reform, especially given the lack of accountability that cities, counties, and school districts have often demonstrated. Lawmakers must continue to focus on ways to make property taxes more transparent and accountable so that the gains achieved during this special session are not eroded by local government mismanagement.

To that end, we at TPPF have some suggestions on what the Legislature should do next.

First, every large local governmental entity should be required to undergo zero-based budgeting on a periodic basis and be subjected to a third-party efficiency audit of their budget and operations. The benefit of these types of reforms is two-fold. No. 1, they both provide voters with a greater level of confidence in the stewardship of their tax dollars. No. 2, they also identify opportunities for local officials to improve the quality of services they provide. Together, these two techniques will promote voter confidence and ensure that taxpayers are getting the best bang for their buck.

Second, policymakers should strengthen the voter-approval tax rate (VATR) mechanism, which is the “maximum [tax] rate allowed by law without voter approval.” One way to do so is to include new property values in the VATR calculation. Under current law, the certified values that taxing entities use to determine their tax rates exclude the value of new construction. This omission can result in local governments collecting more tax revenue than the spirit of the law intended. Another way that policymakers could improve the VATR is to lower the limit for all taxing entities to 2.5% or less. By establishing one standard and lowering the threshold for most governmental entities, policymakers will bring uniformity to the system and incentivize greater public participation in tax increase elections.

Finally, the legislature should establish a minimum voter turnout requirement as a prerequisite for the approval of bond propositions. Far too often, local officials propose massive bond propositions, which come along with tax increases, during off-peak elections or at times when few voters show up to the polls. This means that “a relatively small percentage of eligible voters can successfully burden an entire community with millions of dollars in additional taxpayer-supported bond debt and a higher tax rate,” according to the bill. This is not ideal for a well-functioning republic.

To remedy this issue, policymakers should require that a certain percentage of voters participate in an election for a bond proposition to be formally approved. This simple reform would enable more accountability within local government and make the government more responsive to the needs of its constituents.

Texans are hungry for accountability in local government. These reforms provide the accountability that is desperately desired for, but local officials might object due to legitimate concerns about local control and representation. However, local officials are often unable to deliver upon the will of the people and sometimes work to completely bypass it. This was most recently evidenced in Tarrant County when the Tax Appraisal District (TAD) targeted a property tax consultant that was working to help residents of the county to protest and lower their tax appraisals. Because of the mismanagement and controversy of the chairwoman’s seeming inaction on this and other issues, she recently resigned in light of a vote to initiate her recall. This case and others provide evidence statewide action is necessary to renew fiscal responsibility in local government.

Our suggestions for tax reform are the key to making sure that any forthcoming tax relief is sustained well into the future. Without them, we may well find ourselves back in the same predicament in 2025.